The head of the Justice Department's Antitrust Division has charged that the telecommunication legislation now before the Senate would complicate regulation of the industry and decrease the likelihood that the government will succeed in its suit to break up the Bell System.

Assistant Attorney General William Baxter, in a strongly worded letter sent last week to David Stockman, director of the Office of Management and Budget, attacked the basic concept of the bill: establishment of a separate American Telephone & Telegraph Co. subsidary to offer unregulated communications services. A copy of Baxter's letter was obtained yesterday.

Baxter's letter also said that the legislation is a "political" compromise between the Justice Department's desire that AT&T be split into two separate companies rather than be allowed to form a subsidary and the continuing legal ban on AT&T's entrance into unregulated markets, and the letter charged that Congress hasn't held hearings on the concept of a separate subsidary.

"This legislation raises too many fundamental questions -- questions going to the commitment of this administration to true deregulation -- to permit administration endorsement" of the bill "at this time," Baxter wrote.

The letter was a response to a draft copy of testimony that was to have been presented Tuesday by Commerce Secretary Malcolm Baldrige to the Senate Commerce Committee. Baxter's dissenting views on that testimony were largely responsible for the cancellation of testimony by administration representatives.

That cancellation, announced late Monday, and Baxter's view were the target of sharp criticism by the Republician leaders of the committee, including the panel's chairman, Sen. Robert Packwood (R-Ore.) and Sen. Barry Goldwater (R-aRiz.), the chairman of the communications subcommittee. Packwood and Goldwater are chief sponsors of the legislation.

The administration, however, is expected to endorse the legislation in testimony later this month despite a plea from Baxter that OMB bar even the Commerce Department from endorsing the legislation. Baxter's letter essentially represents the entire Justice Department's position because both Attorney General William French Smith and his top deputy, Edward Schmults, have removed themselves from considering AT&T matters in light of previous links with the telephone giant.

Baxter's letter mirrors the policy view of the Antitrust Division during the Carter administration, when it publicly aired its opposition to Commerce Department support for similar legislation last year. The letter by Baxter, a former Stanford University professor, differs primarily, however, in its strong tone.

Baxter noted that the legislation, which bars AT&T from offering cable or mass-media services, is "clear testament to the fact that when significant economic interests are at stake," the bill's sponsors "have little faith" in the separate subsidiary concept.

Further, the antitrust chief said that in light of the legislation's mandating "open-ended" regulatory authority in the hands of the Federal Communications Commission, the administration should look more carefully at the bill before endorsing a plan "that holds out the promise that the FCC's regulatory tentacles will stretch out to reach any, and perhaps all, technologies that will develop."

Instead, Baxter said under AT&T divestiture, which would split the Bell-System into two companies -- one containing the 23 operating companies and the other containing the long-distance, research and equipment operations -- the "massive regulatory approach required to supervise" the two businesses under the legislative plan would not be necessary.